New owner will honor Winstar's MAA contracts

The new owner of bankrupt Winstar Communications Inc. of New York says it can fulfill its federal telecommunications contracts.

That's good news for the General Services Administration, which had been making plans to replace the troubled Winstar as a contractor in cities where it was serving federal users.

'GSA is pleased that Winstar Holdings LLC has informed the agency it intends to assume the 14 contracts awarded under the Metropolitan Area Acquisition program,' GSA said in a statement. The MAA program of competitive contracts supplies local telephone service for agencies in 24 metropolitan areas.

Last April, Winstar filed for Chapter 11 bankruptcy protection, and IDT Corp. of Newark, N.J., bought its assets in December.

'We are going to continue to provide service to the government where we are, and we're working on new contracts,' said Charles Garner, Winstar's interim chief executive officer.

Winstar's MAA contracts have a potential value of more than $3 billion over eight years.

'As a percentage of revenue, government business is still fairly small for Winstar,' Garner said. 'As a percentage of opportunity, it is a tremendous opportunity for us.'

Besides, he added, government is 'not a customer you want to p--- off.'

Meanwhile, novation'formally transferring contract obligations to a new entity'continues.

'The novation process will assist GSA and the new company in developing the documents to support the transfer,' according to GSA.Winstar expanded its service areas quickly under the MAA program, using fixed wireless links for last-mile connections to customer premises and bypassing local Bell companies. After debt forced the company into bankruptcy, it continued to serve federal customers.

After the Sept. 11 attacks, Winstar worked with GSA to provide emergency phone service over wireless links to sites in lower Manhattan and parts of the Pentagon.

GSA was caught off-guard by Winstar's Dec. 10 statement that it would liquidate its assets.

The agency began planning to switch to other providers in Winstar's service areas, but bankruptcy Judge Joseph Farnan Jr. ordered the company to continue operating while negotiations for its purchase continued.

On Dec. 19, IDT bought $5 billion worth of Winstar assets with annual revenues of $200 million, for $42.5 million in cash and stock. IDT chairman Howard Jones likened the deal to the purchase of Manhattan for $24.

IDT agreed to invest another $60 million in working capital, with 5 percent of the equity to be held by a group of creditors. Winstar will continue to operate under that name as a subsidiary of IDT. Its headquarters will stay in New York, although most of its staff of 350 work in Herndon, Va.

IDT informed GSA on Jan. 2 that it would assume Winstar's MAA contracts.

Although it has contracts, there is no guarantee Winstar will get all the potential federal business. MAA contracts are not mandatory, and agencies are free to seek local phone service through other vehicles or negotiate their own deals. There also are competing MAA contractors in many of the 14 areas where Winstar offers service.Garner said the company has begun providing service to customers in 13 of the 14 areas.